Killing the Currency
Mises Daily: Monday, May 27, 2013 by Chris Casey
. . . there is no record in the economic history of the whole world, anywhere or at any time, of a serious and prolonged inflation which has not been accompanied and made possible, if not directly caused, by a large increase in the quantity of money. — Gottfried Haberler, Inflation, Its Causes and Cures (1960)
The phrase “not worth a continental” may be vaguely familiar to Americans as an old and quirky saying, but to Revolutionary War–era Americans it would have been a harsh reminder of a recent nightmare. In order to finance the war, the Continental Congress authorized the issuance of money without rights of redemption in coin or precious metals (unlike other currencies in circulation). In short order, over $225 million Continentals were issued on top of an existing money supply of only $25 million. Initially traded on a one-for-one ratio with paper dollars backed by coin or precious metals, within a mere five years Continental currency had depreciated to worthlessness. It was America’s first major experiment with a fiat currency, and it cost many newly free Americans their livelihood and savings.
Such expansion of the money supply is not relegated to America’s past. In response to the 2008 economic crisis, by some measurements the Federal Reserve has more than tripled the money supply. With such pronounced expansion, will the U.S. soon experience significant price inflation, and if so, how severe may it be? Answering these questions requires an examination of the money supply.
The Money Supply
The Federal Reserve creates money by three methods: ...To Read More....